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I got home from the 2007 Annual meeting at a reasonable time last night, but was so exhausted that I decided to wait until this morning to post my thoughts and expressions. I've purposely not read any prior posts on the meeting so as to keep my perceptions independent.


1. The Borsheim's cocktail party on Friday night is getting better and better. Lots of food and lots and lots of free drinks were flowing. The music was good both inside the mall and in the tent. Business was brisk at the jewelry counters. Borsheim's benefits a great deal from the meeting trade, obviously.

2. Ancillary cocktail parties are growing and growing. Whitney Tilson and lots of others are using the Berkshire event as an effective marketing tool.

3. My most eager students were in line by 11:00 pm. Quite a group were there by 3:00 am. I slept in and didn't arrive until 4:30 am. Light rain kept down the number of early arrivals, so it was hard to judge the amount of interest among the “hard core,” but I detect no slackening of interest.

4. There was a huge crowd at the meeting. 27,000 were in the Quest Center, including the adjacent AV rooms. Despite its size, it was a quiet crowd. Applause through out the meeting was subdued.

5. Nobody asked about a share split, which kind of surprised me actually. That's a “groaner” question most years. However, Buffett has converted a bunch of his shares from A to B in order to facilitate sales tied to gift giving. That's explicit recognition that the B shares have greater marketability. At this point, I see no point in the dual class structure.

6. The crowd seemed as interested as ever in the products offered in the Quest Exposition Center. Of course, the freebies are long gone, but there was lots of trade going on. Shareholders seemed as eager to buy See's Candies at ridiculously high prices as they were willing to line up for free drinks at Borsheim's on Friday night. I noticed the long line at the RV display, and thought about the aging Berkshire shareholder base.

7. There were more political questions than ever before. “Hook and line” fishermen and Native Americans from the Klamath River Area asked a couple of emotionally-charged questions concerning the desertification and removal of Pacific Corp. hydroelectric projects in the Pacific Northwest. Buffett has been getting lots of pressure on this and had well-prepared answers. As a utility, Berkshire will do whatever the Federal Energy Regulatory Commission (FERC) tells it to do. Another fellow asked about Buffett Foundation support for Planned Parenthood. Buffett likes the organization, and said abortion policy would be a moot issue if nine women sat on the U.S. Supreme Court. That's an interesting conjecture, I'd say.

8. Warren was in top form, but seemed a bit hoarse. Charlie was taciturn, as usual, but was slower and more deliberate than usual. On a couple of occasions, Charlie made light references to dead people that reminded me about how he used to say the same things about old people. Time marches on, I guess. If I were to choose one word to describe this year's meeting, it would be 'transition.”

9. Somebody asked Warren and Charlie about transition at Berkshire and the answer was well rehearsed. Warren discussed how he was searching for one or more “Chief Investment Officers” to manage modest amounts of $5 to $10 billion each as they auditioned for the job. Warren said it was unrealistic to expect more than S&P 500 performance plus a few percent from such successors, and expressed confidence that he was up to the task of finding a capable successor(s). In 1969, when the Buffett Partnership disbanded, Buffett made three recommendations (Ruane, Munger, and another), all of whom did very well. [Of course, those who stuck with Berkshire did far, far better.]

10. It's my hunch that the transition process is far along, much farther along than most expect. I suspect that Buffett has not only identified appropriate parties, but is far along in the process. I expect an announcement within the next few weeks; I'd be very surprised if we don't know something definitive by Christmas.

Before looking ahead, it may be worth looking back. The Berkshire Bay Bs began trading on May 9, 1996 at 1110. As of Monday, May 7, 2007, or roughly 11 years later, they open at 3631. That's 11.4% per year, and a very reasonable eleven-year rate of return. Adjusted for dividends and splits, the DJIA stood at 5,464.31 on May 6, 1996, versus today's 13,265. That's an 8.4% eleven-year rate of return (the S&P 500 did 8.1% over the same period). This means that Berkshire has returned a market plus 3% rate of return over the period since the Baby Bs began trading.

All things considered, I believe it remains very reasonable to expect Berkshire to return a market plus 3% per year return going forward. With less than market risk, Berkshire remains a very attractive alternative to a low-cost index fund in a long-term retirement account.

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